Saudi Aramco touches $2 trillion mark amid strong investor demand on day two

John Benny, Al Arabiya English

Saudi Aramco’s shares ended their second day about 15 percent higher than the company’s IPO price, and fetched the oil giant a valuation of $1.96 trillion, in a clear sign that investor demand remained strong after a recordbreaking listing on Wednesday.

Shares of the company closed up 4.6 percent at 36.80 riyals ($9.81) after hitting a session high of 38.70 riyals, which valued the company at over $2 trillion, earlier on Thursday. More than 414 million shares valued at 15 billion riyals ($4 billion) exchanged hands on the second day.

“We would not be surprised if the stock crosses the 40 [riyal] mark next week pushed by flows,” Vrajesh Bhandari, senior portfolio manager at Al Mal Capital said.

At that level, the company’s valuation would be $2.13 trillion, exceeding the $2 trillion target set by Saudi Arabian authorities when the IPO was first announced in 2016.

Aramco’s IPO raised $25.6 billion, the largest in history, beating out Alibaba’s $25 billion IPO in 2014. It is now the most valuable company in the world ahead of Apple Inc, and is worth more than all five energy majors combined.

Investors have long been attracted to Aramco for its profitability and for having the lowest average cost of crude oil production in the world, at around $3 a barrel. It also sits on one of the biggest oil reserves in the world, about 10 times larger than those of its next biggest competitor ExxonMobil.

“It’s a great company … well managed and in that regard it’s somewhat different from other government-owned oil companies in the world where many of them have a reputation for inefficiency,” said Jay Ritter, an IPO expert and professor at the University of Florida.

National oil companies in countries like Mexico, Brazil and Venezuela are saddled with debt and have suffered decades of corruption.

“Saudi Aramco has a reputation for … outstanding technology, outstanding management, and that’s a big plus for the company,” Ritter added.

Aramco, which has set a base dividend of $75 billion in 2020, reported a profit of $68 billion for the first nine months of 2019. Exxon Mobil, the second largest energy firm with a $300 billion valuation, earned $8.7 billion in the same period.

Vision 2030

The listing is a cornerstone of Saudi Arabia’s Vision 2030 plan, which aims to wean the Kingdom off its reliance on oil and diversify the economy.

The program, which calls for economic and social reforms along with massive investments in infrastructure and technology, was first announced by Saudi Crown Prince Mohammed Bin Salman in 2016. The Aramco IPO is set to support this plan.

“If Aramco is not put for IPO, it means it will take us 40-50 years to develop the mining sector. It will take us 40 years until we develop the local product and it will take us long years to develop logistical services, just like we wasted 40 years in the past while trying to develop these sectors,” Crown Prince Mohammed bin Salman said in an interview broadcast on Al Arabiya back in 2017.

The Kingdom has already made great strides towards its goals.

Saudi Arabia jumped 30 spots in the World Bank’s Ease of Doing Business 2020 index in October – the biggest improvement and highest jump worldwide.

The World Bank said that reforms under the plan had let to improved access to credit, strengthened minority investor protections, and facilitated the resolution of insolvency in the Kingdom.

FAQ's

Saudi Aramco is the Kingdom’s state-owned energy company and the world’s biggest oil producer. In November, the company reported a profit of $68 billion for the first nine months of 2019 – making it the most profitable company in the world.
An initial public offering (IPO) is the process by which a company sells a portion of its ownership (shares) to public investors to raise funds (also known as capital). The company sells its shares by listing them on a public stock exchange, where investors can purchase them.
"I am honored to announce that Saudi Aramco will become a listed company on the Saudi Stock Exchange,” Chairman Yassir al-Rumayyan said in early November. The exact percentage of the company and the possibility of another listing on a foreign exchange are both still unknown details, however.
Senior Saudi Arabian authorities have targeted a $2 trillion valuation. At this valuation, a 5 percent listing would raise $100 billion in funds – dwarfing any other IPO in history. However, some analysts and investment banks have predicted a range closer to between $1.2 and $1.5 trillion.
The IPO prospectus is expected to be released on November 10, with pricing expected November 17. Meanwhile, the float is expected to take place on December 4, followed by trading on December 11.
The IPO is part of Saudi Arabia’s overall strategy to transition into a post-hydrocarbon age. The income generated would be funneled into the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund (SWF). Saudi Arabia’s Vision 2030 plans to transform the PIF into a giant investment vehicle to help the country diversify its economy and reduce its reliance on oil revenues.
Saudi Vision 2030 is the Kingdom’s ambitious plan to diversify its economy by reducing dependence on oil and developing non-oil sectors ranging from healthcare to mining. The IPO is seen as a cornerstone of Vision 2030, boosting the PIF as the long-term investment vehicle for the Kingdom.

Saudi Arabia’s Crown Prince Mohammed bin Salman

- The Crown Prince is the architect of Vision 2030 and originally announced plans to list shares of Saudi Aramco in 2016.

Prince Abdulaziz bin Salman, Saudi Arabia’s Energy Minister

- Prince Abdulaziz assumed the role of energy minister in September of this year, replacing Khalid al-Falih.

Yasir al-Rumayyan, Chairman, Aramco

- Al-Rumayyan became chairman of Aramco’s board in September. He is best known as governor of the PIF, a role he continues to hold.

Amin Nasser, President and CEO, Aramco

- Nasser has been with Aramco for more than three decades and has held numerous leadership positions.